Cable companies prepare for flotation

SEVERAL substantial cable TV companies operating in Britain, including Telewest, General Cable and Comcast, are actively exploring the possibility of floating on the London Stock Exchange this year to create a new stock market sector. It is believed that some of the companies seeking a listing would be big enough to join the FT-SE 250.

Industry sources say that among the candidates are Encom and Videotron, both of which operate franchises in the London area and count Bell Canada Enterprises and Cable & Wireless among their shareholders. Other potential candidates include Telewest, a large UK cable business jointly owned by TeleComunications Inc and US West; Comcast, another US-owned operator; and Nynex, the largest cable TV company in Britain.

One flotation option being canvassed in the City would be to link several cable companies in a single investment vehicle to give it sufficient critical mass to launch a full-scale international offer. Such a company could be valued at anything up to pounds 1.5bn, large enough to place it in the FT-SE 100 index.

The Cable Television Association believes it might be possible to group a number of cable franchises, controlled by a variety of different companies, into a single stock market vehicle.

The Independent Television Commission, which is responsible for granting and monitoring individual cable franchises, has been asked to look into the regulatory implications of such groupings.

The big cable companies in Britain are largely owned and controlled by American operators. London listings are being sought by some to make their UK operations seem more genuinely British and counter political concern about undue foreign influence over lucrative cable franchises.

Apart from the flotations, pounds 2bn will be raised this year in debt finance for investment in cable television franchises in Britain, according to NatWest Markets.

Over the past 12 months, the cable television industry has emerged from the wilderness to become one of the most sought- after investment opportunities in the City. The euphoria is coupled with a perceived transformation in the economics of cable, driven by the emergence of cable telephony.

Cable television companies can offer telephone services within their franchise areas as well as television. More are doing so, and they are attracting customers from BT by charging up to 20 per cent less.

The Cable Television Association estimates that by 1 January, there were more than 600,000 people subscribing to cable TV and 300,000 cable telephone lines installed. The CTA believes pounds 6bn will have been invested in cable TV franchises by the end of the decade - some experts think it will be much more - and that 75 per cent of households will be covered within 10 years. Much of the spending will have to occur in the next few years for companies to meet regulatory deadlines on building the networks.

According to a report by NatWest Markets, 35 per cent of the industry has changed hands in the past year, with buyers including Nynex, Telewest and Singapore Telecom.

Nynex, a US-based telecommunications company, now has franchises covering 2.7 million homes. Its most far-reaching project is the linking of eight contiguous franchises in north-west England. The result will be a fibre optic network, forming the basis for regional television and telephone services. Nynex has launched a two-year pounds 1bn debt-financing programme to help pay for its planned pounds 1.5bn investment.

North American telecommunications and media companies dominate the sector, while few British companies, with the notable exception of Cable & Wireless, play any significant role. Further consolidation is expected in the industry. The Cable Television Association believes it will become increasingly expensive to buy into franchises.

Some analysts believe that cable companies will have telephony revenues of around pounds 1.6bn by the end of the decade. Recent research by Barclays de Zoete Wedd concluded that by 2000, BT could be losing pounds 1bn a year to cable operators.

BT, which admits concern, is barred from delivering television over its network and considers the restriction unfair in the light of the growth of cable. The bar is in place until 2001, and although it may be reviewed in 1998, the review itself could take years.

BT complains that UK cable operations are almost all backed by very large foreign groups taking advantage of one of the most liberal telecommunications regimes in the world. The company claims it is being disadvantaged in world markets by not being able to gain experience in combining telephony and television.

A spokesman for BT said: 'The Americans are here trialling multimedia and using the UK to experiment, but BT cannot do it in the US. The lessons they learn will stand them in good stead in future.'

BT believes it has found a loophole in the form of delivering video down the telephone wire and is conducting trials in Colchester. However, whether BT can offer video under its current licence restriction - cable companies say it cannot - is yet to be tested in court.

BT claims its planned video-on-demand service would escape the ban since transmitting a movie to a single household at a time would amount to 'narrowcasting' not 'broadcasting'. It is only when a movie is transmitted simultaneously to a number of households that it becomes 'broadcasting', BT insists. The cable operators say the rules make it clear that BT is banned from offering any kind of entertainment service via the telephone network.

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